October was a mixed month for global risk assets. Developed and emerging market equities were mixed with fairly high dispersion across geographies, the USD strengthened, US interest rates rose and the curve steepened, commodities were mixed, and credit spreads widened slightly. Minutes from the September Federal Reserve meeting indicated that several officials were in favor of raising rates; markets now expect an interest rate hike after the US election in December. The ECB left its stimulus program unchanged, and indicated that an extension of their bond purchase program was likely to be announced at the December meeting. As Brexit discussions intensified, the British pound fell to a 31 year low against the US dollar. Third quarter US GDP expanded at a 2.9% inflation adjusted annual rate. The US job report showed that 156,000 jobs were added in September, the unemployment rate rose to 5%, and the labor force participation rate ticked up to 62.9%.
Notable corporate transactions announced in October included the $4.5 billion acquisition of Cabela’s by Bass Pro Shops, Samsung’s purchase of Viv Labs, the sale of some of AIG’s Latin American and European property and casualty operations to Fairfax Financial for $240 million, a $47 billion bid by BAT to take full control of Reynolds American, AT&T’s $80 billion acquisition of Time Warner, the $4 billion purchase of Scottrade by TD Ameritrade, Qualcomm’s $39 billion acquisition of NXP Semiconductors, the combination of GE’s oil and gas business with Baker Hughes, creating a company with $32 billion in revenue, CenturyLink’s $25 billion acquisition of Level 3, and Blackstone’s $3.2 billion purchase of Team Health.
Developed market equity markets were mostly higher in October (see page 8), with the largest gains in Spain (+5.8%), Japan (+5.1%), and Italy (+4.3%); the worst performing were the S&P 500 (-1.9%), Australia (-1.6%), and Hong Kong (-1.2%). US small caps underperformed large caps, with the Russell 2000 down 4.8% and the Russell 1000 down 2% (see page 3). Financials (+2.3%), Utilities (+0.9%), and IT (-0.1%), were the best performing sectors in October, while Healthcare (-6.5%), Telecom (-6.5%), and Energy (-2.9%) were the worst performing (see page 2). Large cap growth (-2.3%) underperformed large cap value (-1.5%) in October (see page 3). Emerging Market equities were mixed in October (see page 9), with the biggest gains in Brazil (+11.1%), Taiwan (+2.1%), and Mexico (+2%); the Philippines (-2.9%), China (-1.9%), and Thailand (-1.3%) were the worst performing.
In currencies, the USD Index was up 3.1% in October (see page 10). The weakest developed market currencies against the USD were the British Pound (-5.6%), Swedish Krona (-5.1%), and Norwegian Krone (-3.4%). Emerging market currencies were mixed against the USD, with the biggest gains in the Mexican Peso (+2.8%), Brazilian Real (+2.2%), and South African Rand (+1.9%); the Korean Won (-3.7%), Turkish Lira (-3%), and Singapore Dollar (-2%) weakened.
The US Treasury yield curve steepened and rates rose across the curve in October (see page 12). 10 year rates closed the month at 1.83%, up from 1.60% at September month end. Investment grade and high yield credit spreads widened slightly in October (see page 13).
In commodities, the GSCI index was down 1.5% in October (see page 11), with gains in Livestock (+4.2%), Agriculture (+2.4%), and Industrial Metals (+1.1%), and losses in Energy (-3.5%) and Precious Metals (-3.8%). Within individual commodities, Lean Hogs (+9.1%), Coffee (+8.3%), and Corn (+5.4%) saw the biggest gains, while Palladium (-14.3%), Silver (-7.4%), and Sugar (-6.2%) saw the biggest losses. Gold was down 3.3% in October.
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